Non-Performing Assets (NPAs) are loans or advances for which the principal or interest payment remains overdue for a specific period. In the Indian banking system, a loan is usually classified as an NPA if the payment is overdue for more than 90 days. Think of it like a shopkeeper who gives goods on credit. If the customer does not pay back for three months, the shopkeeper realizes the money is stuck. For a bank, these 'stuck' loans are NPAs.
Concepts (3)
Provisioning is the practice of setting aside a portion of profits to cover potential losses from NPAs. Since the bank might not get the loan money back, the RBI mandates they keep some money in reserve. The amount depends on the asset category.
Provisioning is the practice of setting aside a portion of profits to cover potential losses from NPAs. Since the bank might not get the loan money back, the RBI mandates they keep some money in reserve. The amount depends on the asset category. For example, a Doubtful asset requires more provisioning than a Sub-standard asset. This ensures the bank stays stable even if the borrower defaults.
This law stands for 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest'. It gives banks the power to seize and sell the assets (like land or buildings) given as collateral by a borrower.
This law stands for 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest'. It gives banks the power to seize and sell the assets (like land or buildings) given as collateral by a borrower. The bank does not need to wait for a court order, making the recovery process much faster. Example: A bank can auction a factory if the owner fails to pay a big business loan.
Stressed assets is a broader term than NPAs. It includes NPAs plus Restructured Loans and Written-off Assets. Restructured loans are those where the bank gives the borrower more time or lower interest to help them pay.
Stressed assets is a broader term than NPAs. It includes NPAs plus Restructured Loans and Written-off Assets. Restructured loans are those where the bank gives the borrower more time or lower interest to help them pay. Written-off assets are those the bank no longer counts as assets on its balance sheet. Understanding this helps in knowing the true level of 'bad loans' in the system.
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